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DB plan sponsors concerned about inflation: Survey

Eighty-four per cent of defined benefit (DB) plan sponsors are concerned about the threat of inflation and the potential impact it can have on plan assets, according to a recent survey by RBC Dexia.

"The threat of inflation is not just a concern of the everyday consumer, but it is front and centre in the minds of Canadian pension plan sponsors," said Scott MacDonald, head of pensions, insurance and financial institutions product at RBC Dexia. "It's also particularly interesting to note the disparity between public and private plans, both in identifying what risks are most relevant and the differences in asset allocation strategies."

The most frequently cited approach to mitigating against inflation was the use of real return bonds (RRBs) in portfolios — seen as a sound strategy to better match indexed pensions, found the survey of 108 plan sponsors across Canada.

In the next six months to one year, 21 per cent of respondents said they are looking to increase their allocation. And it's certainly where the large plans are headed, with 46 per cent of the “over $1 billion” club set to increase investment in alternatives, such as infrastructure assets, found the survey. On the other hand, 26 per cent of private plans have no allocation to that segment.

Increases in other asset classes include 19 per cent of respondents bumping up emerging market equity positions, 17 per cent increasing bonds in developed markets, nine per cent growing emerging market bond holdings and seven per cent of respondents increasing positions in developed market equities.

The survey also found the majority (85 per cent) of respondents said their funded status ranged from 80 per cent to 100 per cent. And six per cent of respondents' funded status exceeded 100 per cent.

Respondents were asked if the plans had adjusted their communications strategies with plan members to meet increasing demands for information transparency. For the majority of respondents (58 per cent) no changes were necessary. But for 42 per cent of respondents, new approaches were put in place.

Respondents were asked whether the plans had to provide their members with more information on plan solvency and stability. More than two-thirds of respondents (67 per cent) said they have not had to provide any additional information, reflecting a confidence (either real or perceived) plans sponsors have with how they are communicating to their members, found the survey.